I have so many questions!
But don’t make the whole process more complicated than it has to be. So what do we do? We go to any of the Indian Websites (we will now be terming them as exchanges), that offer cryptocurrencies. We sign up, by clicking register, and then we pay online, whatever the account opening charges are. Then we have to upload our verification documents for KYC. (I am sure you all know what a KYC is).
Standard documents will include:
2. Aadhar Card
3. Pan Card
4. Bank Details (Since this is from where we will deposit the money for trading)
1. How to trade?
Once you have submitted your documents you have to wait till when the verification is complete. This is done by a backend team, and the time required is always variable. When I signed up, it was in the early stages, and my verification was done in 5 minutes.
But now that the crypto bug has caught the public eye, and lots of people are trying to enter, there appears to be a time lag from the time you upload your documents to the time it gets verified.
Notes while uploading documents:
It appeared to me, atleast in the handful of exchanges I signed up for, that they use something like an automatic image recognition program before accepting your docs. So if you are not scanning your docs and relying on photos from your phone’s camera, you may face some issues. In my case, apparently the photos were reflecting too much light as I had taken them with the flash of my mobile on. That probably messed with their program/algorithm, and for the first 5 tries or so they said that my photo was not suitable (It was the photo of my Aadhar card). Eventually I took a photo at a better location without flashes and unnecessary reflections. So if your photo is getting rejected, don’t panic, just make sure that it is understandable and clear, and try to rectify anything that you suspect is the culprit in subsequent attempts.
2. Once KYC and verification is done, then what?
Now we can finally get our hands dirty. So go sign in to whatever exchange you are using. There should be a tab called “Funds” or “Deposits” or something similar. Click on that. There should be an option that will ask you to deposit the money. In Koinex, for example, they have clearly stated that to deposit money, you have to add a new payee/beneficiary in the net banking portal of whatever bank you are using. Once added successfully, you can transfer the funds to the account that Koinex has provided.
I have limited idea about other exchanges, but I’d reckon they’d be something similar. Or otherwise, they might also be using easier methods like payments through Paytm/Net Banking/Credit/Debit card. In a nutshell they won’t be more complex than ordering food through foodpanda.
3. How many tokens can I buy? Do I have to pay near to 8 lakhs to buy a Bitcoin (BTC) or any other cryptocurrency for that matter?
So this is a question many new investors have, and the answer is no. Don’t think of BTC or crypto as having a sacrosanct number. One can also buy a fraction of a crypto. For example if BTC price is INR 8,00,000. But you only have INR 1,000 to invest. You will be allotted 1,000/8,00,000 = 0.00125 units of BTC. So money is not a constraint.
4. Ok, so how to trade, like actually?
This is very simple. All these exchanges work on pretty much the same concept as the Indian Stock Markets (Or any other stock market for that matter). For those of you who are familiar with the stock markets navigating the menu shouldn’t be a surprise. For those of you who do not know anything about the stock markets, I strongly suggest that you invest in the stock markets first, not because you cannot do crypto if you don’t have any stock market knowledge, but because as an investor who has learnt it the hard way, I simply cannot advise you to start your wonderful journey of investments from crypto, because that is a dumb decision. A portfolio should have a healthy balance of stocks, mutual funds, crypto etc. But one should ideally start with stocks, as it is a much more evolved market, and you as a retail investor have SEBI looking after you.
5. I do know about the stock markets, but this is looking foreign to me. Why are there different buy and sell prices?
So in most exchanges, you will find that the prices at which the buyers buy and sellers sell are different! But if you are new or have a preliminary knowledge of the stock markets this will look foreign to you, since, in our stock exchanges, or in CNBC/Any other business website, the stocks will only have one singular price point. Now you may think why such a divergence. Let me start off by saying that this is actually not a divergence at all. In the Indian Stock Markets there are a lot of investors, simultaneously buying and selling because of which, it is assumed that the prices are fixed at a particular level. The stocks, especially those listed in Nifty or Sensex has so many buyers and sellers that at all times and price points, there exists someone willing to buy and someone willing to sell. However in the cryptoworld, the number of participants are not so high. So there is a divergence. Here you find that the buyer and seller specifies a price, and the list is given below, where we find buyers willing to buy a coin for a particular price, and sellers willing to sell at that price. Now a trade does not happen till these two participants, a buyer and a seller, meets.
Say I have given a buy order for 0.25 BTC @ a price of INR 8,00,000/BTC.
Someone else has given a sell order of 0.80 BTC @ a price of INR 8,25,000/BTC.
You will not be getting any BTC since the price at which the seller is willing to sell is higher.
But what if it were quoting lower?
Say I have given a buy order for 0.25 BTC @ a price of INR 8,25,000/BTC.
Someone else has given a sell order of 0.80 BTC @ a price of INR 8,00,000/BTC.
You are lucky, your trade will go through, since you are ready to buy BTC at a price higher than at where a seller is willing to sell. But since you have quoted INR 8,25,000/BTC and the seller is ready to sell at INR 8,00,000/BTC, you won’t have to pay INR 8,25,000/BTC. Thus, you don’t have to worry about overpaying for something that a seller is ready to sell for a lower price. You can give the highest rate that you are willing to buy the crypto for.
Now amounts are again an issue, imagine a scenario:
Say I have given a buy order for 1.00 BTC @ a price of INR 8,25,000/BTC.
Someone else has given a sell order of 0.50 BTC @ a price of INR 8,00,000/BTC and suppose all other sellers are willing to sell their BTC @ a price above your quoted price of INR 8,25,000/BTC. In that case you will only get 0.50 BTC, and will have to wait till some other seller comes down to your price to get the remaining 0.50 BTC that you had ordered.
In the below table in the buy side topmost rows contain the highest value an existing buyer has quoted for Ethereum. The sell side contains the lowest price that someone wants to sell Ethereum for. See that there are different volumes. So the difference in these prices ~33,000-33,089 = 89, is the spread. It is expected that the buy order price and the sell order price will try to meet each other eventually (Otherwise no trades will happen).
For some additional info, this is exactly what happens in the stock exchanges, such as NSE and BSE. Only that this backend calculation is kept hidden from us. Look in the below excerpt from moneycontrol.com for Infosys. If you let your mouse hover above the market depth option, it shows you the latest buy and sell orders and the respective levels.
6. Why does the price differ in the Indian exchanges compared to the other worldwide exchanges? 1 BTC or any other crypto for that matter is much costlier to buy in an Indian exchange than any of the international exchanges! Infact even 2 Indian exchanges do not have the same price for the same crypto! Why is this? Is this fraud?
Yes, the price is different for different exchanges, and while the Indian exchanges have prices that are different but generally near each other, an Indian and an International exchange will have huge price differences. This is not unique to India, infact at the same time, while a US Exchange will list BTC @ $ 6000, and Indian exchange can list it @ $ 8000, and an exchange in Zimbabwe will have BTC @ $12,000. This happens for 2 different reasons:
1. Local demand and supply, people in India are willing to pay more/less for one BTC than their international counterparts.
2. The exchanges themselves buy the BTC or other cryptos from other bigger exchanges and then sell it to you, they are taking a huge price volatility risk since they generally buy say, 100 BTC in the beginning of the week, with just a vague prediction about the number of people who will ask for BTC. Now if the price of BTC reduces sharply then they stand to make huge losses. For this reason, they charge a bit higher, to ensure that even if an event of loss does happen, the profits from these transactions can together offset those losses.
7. But then there is an arbitrage opportunity! I can buy BTC in India @ $8,000 and send it to an exchange in Zimbabwe and sell it @ $12,000. All I need to do is repeat this process till we are rich!
Well, you can try that, and although I haven’t tried it I’ll encourage others to try and hack the system because if we aren’t thinking of ludicrous ideas such as this we are not trying hard enough? Am I right? But before you do that let me just share a fragment of what struck me when I thought of doing it.
1. If you follow the above process, how are you going to route your money back to India?
2. If you sell your crypto in Zimbabwe are you getting USD against it or Zimbabwe dollar? Because if you are being paid in Zimbabwe dollars how will you convert it into INR? Or a currency that you can use?
3. Hawala kar sakte ho! Kitna legal hai pata nahi. Legal nahi hai to mat karo.
If any of you figure out how to do it, do tell me I am all ears.
8. It appears that there are a lot of cryptocurrencies, but Indian exchanges don’t list them all. Where can I get all the cryptos to buy and trade?
Most Indian exchanges do not list all the cryptocurrencies, as a matter of fact, no exchanges do! But there are 2-3 Indian exchanges that offer relatively a large number of currencies. The 2 that comes to my mind immediately are Koinex and Buyucoins. However if you are not satisfied with the menu there, then you will have to move on to other international exchanges.
9. Can I trade in other international exchanges?
Yes, the sign up/registration process is much the same as it is in the Indian exchanges. They won’t even ask for KYC. They will however insist that you do a 2 Factor Verification. And you cannot transact in such exchanges using Indian rupees, to trade there you need US Dollars.
10. But, I don’t have US Dollars! How do I trade in these exchanges, is here a way in which I can convert my Indian Rupees into US Dollars and then upload it?
No, as far as I know you cannot do direct transfers of money like that. And banks will not exchange the money. What you need to do is buy Bitcoins from any of the Indian exchanges. From your wallet in the local exchange which has bitcoins that you bought for rupees, you can send these bitcoins to the address of the wallet that opened for you in the international exchange! And then once you have bitcoins in those wallets, you can buy other crypto currencies by using these bitcoins. In short, there you will buy other cryptos in Bitcoins.
11. This raises more questions than it answers! What are wallets?
Wallets are just like other payment wallets that we have in India, like paytm or mobikwik, or even your Ola money. Wallets are basically something similar to an account where you can hold money and that is all. We currently use virtual wallets to store virtual money. Just like every other internet company in India, from Ola to Flipkart to Makemytrip has wallets of their own, so do each of these exchanges. The only difference is that there are 2 main features:
1. Each wallet has a unique alphanumerical address, and any wallet in the cryptocurrency world can send their crypto to any other wallet
2. A wallet can only store a single kind of coin (barring few exceptions which are not really relevant at this stage)
Wallet transfers are one way, and if you make a mistake in specifying the address of the destination wallet, the money is lost forever, unlike in real life where you can go cry to banks. The exchanges will not take responsibility for loss in crypto because of this. You will get the hang of it easily, just go to your respective exchanges deposit/withdrawal/funds or any other similar looking section.
12. Do I have to open a wallet separately?
No, each time you register for an exchange, they give you a wallet. One wallet for each kind of crypto that you buy/offer and their respective address.
13. I read somewhere that these are not safe, and I should keep hardware wallets and store my crypto there! What does this mean?
So, the downside of having wallets with an online company, and not just these exchanges but also more familiar ones like paytm or mobikwik, is that these companies can steal your money at anytime. I know this probably scares you. One fine day, you may wake up and see that the website where you were transacting, and storing your crypto just vanished, taking all the crypto with them. Even Paytm can do this if they want to. But we have to take a chance, the Indian exchanges in this matter, can be sued/penalized using the Indian judiciary system. You can seek reproach in the court of law. The foreign exchanges cannot be sued like that. The only way to circumvent this is by using a hardware wallet. What it does basically is that create a hardware store for crypto. It’s like sending the crypto to your harddrive/pendrive (the hardware wallets are also similar to these devices).
So after buying crypto in an exchange, you attach your wallet to the computer, and then that wallet has a software that renders an address for it. You can then send it from your online wallet in the exchange to your hardware wallet. So now, even if tomorrow you find the exchange you have been dealing in has vanished suddenly, your crypto is still with you in your hardware wallet. All you need to do now is attach the wallet to the PC, open an account/wallet in a new exchange, send your crypto stored in those hardware wallets to the one in the new exchange.
14. But can this happen? Can a company suddenly vanish? Taking all of the crypto that was in its subscriber’s wallets?
Yes, and it has happened before. For more details search for Mt. Gox hack in google. Initially it was thought to be a hack, but now all evidence suggests that its fraud. Mt. Gox was one of the earliest BTC exchanges, and the owner was a fraud and made off with all the BTCs.
15. Are BTCs legal, I have seen multiple facebook posts and whatsapp forwards about how the govt. of India has banned these? Will my ass get hauled to jail if I do this?
No, because till now, as far as I am aware, the govt. is wary of BTC, only because it appears to be a good option to store away your black money. Suppose I am a dealer, or an exchange and I am not doing KYC verification. All you need to do is put your black money little by little into a bank and then send it over to the exchange. Now once there, you can convert your money to BTC. And boom, your black money is gone, and you still have money, since all you need to do is sell off the BTC at the opportune time and get your money back. So DO NOT do business with an exchange that doesn’t ask for KYC. As long as you are doing KYC, and its legit white money, you cannot be hauled off to jail.
16. But the international exchanges do not ask for KYC! What then?
You are forgetting an important point, to do transactions in these exchanges you need to send them crypto from your own Indian exchange/wallet. Otherwise you cannot trade anyway! So if you go through the Indian exchange your KYC is being done automatically.
So there we are, some FAQs. I hope this helps you guys, any questions/suggestions will be appreciated.